A legislative step that protects family businesses

Family businesses are one of the main pillars of the global economy, and they represent the largest sector of private sector companies in the United Arab Emirates, and they constitute more than 90% of the total commercial activity in the Gulf Cooperation Council countries, compared to lower percentages in other regions of the world ranging from 65% to 80%.

Based on this, the UAE legislator drew attention to the importance of this vital sector of companies, especially in light of the problems they may face in the event of the departure of their founder, and the impact that may be inflicted on their activity and future, and the fate of thousands of their employees.

The global and local reality reflects clear facts related to this sector, while the ties of kinship play an important role in consolidating the relationship between members of the same family, but the interference of money, and what may devolve to children and other great commercial legacy can disturb this relationship, and consequently affect in the corporate future.

How many family companies all over the world faced the risk of disintegration after the death of their founders, due to the lack of a legal framework to protect them, and to make them vulnerable to a conflict of interests, and then comes the new legislation for family companies, to protect these strong institutions, and fortify the national economy from losing any of its pillars.

The new law can be viewed from two basic angles. The first is the objectives of the legislation mentioned in Article (2) of Federal Decree Law No. 37 of 2022 regarding family businesses, represented in developing a comprehensive and facilitating legal framework to regulate the ownership and governance of family businesses in the country, and to facilitate their transfer between generations. , supporting its continuity, enhancing the role of the private sector in economic growth and societal contribution in the country, providing appropriate mechanisms for resolving related disputes, and enhancing its contribution to the country's economy and its competitiveness.

As for the second angle, it relates to the scope of application of the law, as the family business legislation is a legal step that reflects the community’s need to regulate and govern these companies, especially in light of the fact that it was not mentioned in Federal Decree-Law No. 32 of 2021 regarding commercial companies and the previous laws governing them.

And with the existence of local legislation specific to family companies, the provisions of the new federal decree - according to the fourth paragraph of Article 3 - are limited in their application to aspects that are not regulated or provided for by local law, while companies registered within the jurisdiction of any emirate may be allowed to register, and this is a very important point. It reflects the legislator's appreciation of the local privacy of families and family businesses established in each emirate separately.

The new law touched a very important aspect, providing protection for family businesses from disintegration, and establishing a mechanism to resolve any disputes with them, in order to preserve their economic role, and above all their social responsibility, which the UAE legislator always places at the forefront of his priorities. 

Arbitrator and legal advisor

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